If you’re feeling the back-to-work blues this week, look away now, because it’s about to get much worse. Today is “Fat Cat Wednesday”, the day by which a FTSE 100 CEO “earns” the average annual salary of a UK worker. According to analysis by the High Pay Centre, in less than a week, these bosses have already pocketed more than the average worker makes in a year: £28,200.
It is a reminder of the huge gaps in wealth, income, and power we see in the UK today, but it is also a reminder of the perverse way in which business has come to value people. Recent analysis by The Equality Trust found a FTSE 100 CEO now receives 172 times more than a nurse earns, 145 times more than a teacher, 324 times more than a care worker, and a staggering 401 times more than a minimum wage worker receives in a year.
While the pay of a gilded “elite” disappears into the stratosphere, those who care for us, protect us, and teach our children, are left struggling to get by. This isn’t simply a moral matter; pay inequality drives wider inequality, and as a broad body of research proves, this harms our society and economy in numerous ways.
The UK is now one of the most unequal countries outside the developing world. And countries with high levels of inequality also have higher levels of mental and physical ill health, violent crime, teenage pregnancies, poorer education and lower levels of trust in each other.
This isn't just a concern for citizens either; it is increasingly an issue for businesses. Polling by the CIPD found 71 per cent of employees said bosses’ pay is too high and 59 per cent felt directly demotivated by it. Meanwhile, more than half of the membership of the Institute of Directors identified “anger over senior levels of executive pay” as a threat to public trust in business.
The apologists for runaway executive pay will tell you it’s simply a result of functioning markets – that some have exceptional skills that are greatly valued. However, this falls down with even the slightest analysis. Pay is set by opaque remuneration committees consisting of the peers of those whose pay they are setting. The entire process of executive recruitment is similarly cosy, with positions headhunted from a tiny pool of possible candidates. More oligopoly, less functioning market.
Others argue CEOs are simply “worth it”, but a recent study from the Lancaster University Management School found the link between executive pay and good performance “negligible”.
The good news is that some enlightened CEOs are taking tentative steps to address high executive pay, with a number of high profile organisations and companies supporting the compulsory publication of pay ratios. Others have gone even further, with the Head of Grant Thornton, Sacha Romanovitch, capping her pay, and the new Head of the Co-op Group, Richard Pennycock, even asking for a pay cut. This is a positive start, and shows what can be done.
We need far more ambitious measures to involve employees in decision-making so that their input and expertise is truly valued, and an active curb on runaway executive pay built into the system. That requires large and medium-sized businesses to not only publish the pay ratios between their CEO and average paid employee, but to be required to have boards composed of a third of workers.
We know that many CEOs are very talented and hardworking, but so too are many of their employees who are valued at a fraction of their pay. The cost of unequal pay to business, and to those struggling on poverty pay, is clear. It simply can’t go on like this.
Wanda Wyporska is the Executive Director of the Equality Trust
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